Did you know that just a 2% reduction in Cost of Goods Sold (COGS) in a $1.25 million veterinary hospital equates to a staggering $50,000 per year? That’s a significant amount that could be redirected toward investing in your team, state-of-the-art equipment, or facility improvements.
In these uncertain times, optimizing COGS is probably the sole remaining avenue to increase revenue and practice valuation. Raising prices, hiring more staff, augmenting traditional revenue streams – all of these options are nearly exhausted. With visits on the decline, many hospitals might even be facing flat or negative top-line growth next year. Reducing COGS is an untapped leverage, and we have the solutions – whether through process enhancements, training, innovative tools, or software – to help you capture that opportunity and boost EBITDA.
Fill out the form below to get the recording of the informative session where we unveiled the strategies to optimize inventory management and pricing in veterinary hospitals, ultimately elevating your profit margins, saving time, and reducing stress for your team.
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Recorded on Thu, November 2, 2023, at 11 a.m. PT
5 Proven Strategies to Reduce COGS in Your Veterinary Practice
Strategy 1: Calculate and Monitor Your COGS Accurately
Most veterinary practices track COGS as a percentage of revenue, but many calculate it inconsistently. Before you can improve your COGS, you need to measure it correctly.
The fundamental formula: COGS % = (Total Cost of Goods Sold ÷ Total Revenue) × 100
Here’s what makes this tricky in veterinary medicine: unlike retail, you’re running a service business where products are often consumed during procedures or bundled into services. This means you’ll make batch adjustments to your balance sheet rather than tracking individual product sales.
Industry benchmarks to aim for:
- Small animal general practice: 18-22%
- ER/Specialty: 5-15%
- Large/Mixed animal: 22-24%+
But here’s the critical insight: your practice is unique. A hospital generating 85% of revenue from services and only 15% from products will have dramatically different COGS than one with a 50/50 split. Your sales and product mix matters more than generic benchmarks.
In the full webinar, Nicole walks through real P&L statements and shows you exactly where to find these numbers, how to track them monthly, and how to identify trends over 3-5 years that reveal your practice’s financial health.
Strategy 2: Eliminate Formulary Redundancy
One of the fastest ways to reduce both COGS and inventory carry? Stop stocking five different flea and tick preventions when two would serve your patients just as well.
The hidden costs of redundancy:
- Multiple SKUs tie up cash on the shelf
- Low-margin, high-cost items (like flea/tick products) take up valuable space
- More products = higher risk of expiration, theft, and waste
- Team confusion about which product to recommend
The smarter approach: Create a concentrated formulary where you stock intentionally, choosing the best options for your patients rather than trying to offer every possibility. This doesn’t mean compromising care; it means making strategic decisions about what you keep in-house versus what you prescribe for external fulfillment.
The webinar includes specific guidance on how to evaluate your current formulary, identify redundant products, and build team buy-in for a more focused approach—all while maintaining clinical excellence.
Strategy 3: Combat Product Overstock Through Smart Inventory Management
Product overstock is silent profit killer. When practices carry more than 45 days of supply for most items, they’re tying up cash that could be deployed elsewhere while increasing the risk of expiration and waste.
The three-part solution:
- Increase inventory turnover – Order more frequently in smaller batches rather than bulk-buying “deals”
- Prioritize high-value, high-volume items – These products have the biggest impact on your balance sheet and the highest risk for shrink
- Use dynamic reorder points – Set reorder triggers based on actual usage patterns, not guesswork or “shaking the bottle”
Think about it: a $1.8M practice with 40% inventory carry has $60,000 sitting on shelves. That same practice with optimized 20% carry has only $30,000 on hand—freeing up $30,000 in cash while actually improving availability through smarter ordering.
In the webinar recording, you’ll learn the exact formulas for calculating inventory turnover, how to identify overstock in your practice, and the software tools that make dynamic reorder points effortless.
Strategy 4: Implement Strategic, Consistent Pricing
Inconsistent pricing might be costing you more than any other single factor. During practice audits, Nicole routinely finds products priced below their cost, meaning practices literally lose money every time they dispense them.
Common pricing mistakes:
- Not receiving purchase orders, so price increases aren’t passed to clients
- No consistent markup strategy across product categories
- Misalignment between practice owners and inventory teams about pricing responsibility
- Outdated fees that don’t reflect current labor and overhead costs
The foundation of strategic pricing:
Your pricing model should account for your practice’s values, unique costs, and target margin goals. Whether you use markup percentages (easy to maintain, automatically adjusts with cost changes), margin-based pricing, or custom formulas, the key is consistency and documentation.
The webinar provides breakdowns of different pricing models, shows you how to build prescription fee strategies that align with your practice values, and includes templates for documenting your pricing process so any team member can apply it consistently.
Strategy 5: Leverage Technology to Eliminate Manual Errors
Manual inventory management leads to overordering, stockouts, missed charges, and wasted time. Modern inventory management software transforms this chaos into predictable, profitable systems.
What technology enables:
- Automated cycle counts that catch discrepancies before they become losses
- Dynamic reorder points that adjust based on actual usage and seasonal trends
- Integration with distributors for streamlined ordering
- Real-time visibility into what’s actually driving your COGS
Beyond software, the webinar covers process improvements and team training that amplify your technology investment—because tools are only as good as the systems and people using them.
In the recording, Emmitt and Nicole demonstrate how practices use Inventory Ally alongside other tools to reduce inventory costs by 20-30% while actually improving product availability and reducing team stress.
Our hosts
Emmitt Nantz
Emmitt Nantz has been part of the veterinary family for nearly two decades and is driven by a personal mission to make the veterinary domain better. Emmitt spent 12 years working at Banfield, starting out as a single-site hospital manager. Having majored in agriculture business management, he expanded his education to include an MBA, a Black Belt in Six Sigma, and a Project Management Certification.
Emmitt applied these learnings at Banfield and later as a Chief Operating Officer at Galaxy Vets, where he created large-scale operational improvements for the entire group with a focus on improving employee and client satisfaction. In pursuit of his passion for workflow optimization, Emmitt honed his expertise in a critical area that often plagues hospitals’ bottom lines – inventory management. He co-founded Inventory Ally, an all-in-one cloud software designed to help veterinary professionals reduce inventory costs, streamline processes, and save time.
Nicole Clausen
Nicole Clausen, CSSGB, CCFP, CVBL has over 15 years of experience in the veterinary industry with responsibilities ranging from receptionist, technician assistant, lead receptionist, inventory manager, and operations manager for several different hospitals. She is now the founder and consultant at Veterinary Care Logistics, a consulting firm specializing in inventory management for veterinary professionals. In addition, Nicole is the founder of the Certified Veterinary Inventory Professional program and is a co-founder of Inventory Ally, where she creates strategic, functional inventory systems that reduce costs, increase efficiency, and get back to what matters most to the veterinary team … their patients!
Nicole has authored several publications, including controlled substance management protocols and policy and procedure manuals. Clients include national and regional corporations, hospital groups, and private veterinary hospitals all across the United States. She has spoken at numerous industry-sponsored conferences on inventory management, as well as produced a full suite of online, self-paced inventory management courses. She is also the host of the Inventory Nation Podcast.
Helpful Resources
Veterinary Care Logistics
The go-to inventory consultants serving veterinarians, aiming to reduce costs and streamline processes.
Learn More
The Inventory Nation Podcast
A weekly podcast with Nicole Clausen where we talk about all things veterinary inventory.
Learn More
Veterinary Inventory Management Training
Resources & education for inventory managers who need help, but don’t know where to start.
Read More
FAQ: Your COGS Questions Answered
What is COGS in veterinary medicine?
Cost of Goods Sold (COGS) represents the direct costs of inventory items you sell or use in providing services—pharmaceuticals, medical supplies, food, preventatives, and retail products. In veterinary medicine, COGS is typically expressed as a percentage of revenue. Unlike retail businesses, vet practices bundle many products into services, making COGS tracking more complex but equally important for profitability.
How do I calculate my practice’s COGS percentage?
COGS % = (Total Cost of Goods Sold ÷ Total Revenue) × 100. You’ll find these numbers on your P&L statement. Calculate this monthly and track trends over time. For example, if your practice generated $3,078,095 in revenue and spent $635,646 on inventory, your COGS is 20.7%.
What’s a good COGS percentage for my practice?
It depends on your practice type and product/service mix. Small animal GP: 18-22%; ER/Specialty: 5-15%; Large/Mixed animal: 22-24%+. However, these are guidelines, not absolutes. A practice deriving 85% of revenue from services will naturally have lower COGS than one with significant retail product sales. The key is understanding your baseline and improving from there.
What’s the difference between COGS and Inventory Carry?
Inventory Carry (or Inventory on Hand) is the dollar value of products sitting on your shelves. It appears as an asset on your balance sheet. COGS is the cost of products you’ve actually sold or used. It appears as an expense on your P&L. Both metrics are interconnected: high inventory carry often signals low turnover and contributes to high COGS through waste, expiration, and tied-up cash.
